Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“After today's reports, the risk is skewed downward and even stagnation cannot be ruled out”

- Greg Fuzesi, an economist at J.P. Morgan

German industrial production unexpectedly dropped for a second consecutive month in December, while exports and imports also declined, indicating that the Euro zone’s number one economy ended last year on a weak footing. German industrial production fell 1.2% in December from the preceding month, a sign that the German economy is feeling the effects of a deteriorating global outlook. The retreat came at a time when record-low jobless rate and low fuel costs encouraged consumer spending, but slowing growth in China and emerging economies are offsetting those positive trends.

Separate report from the Federal Statistics Office showed that seasonally-adjusted exports dropped 1.6% in December, while imports declined 1.6%, narrowing the nation’s trade surplus to 18.8 billion euros. For 2015, Germany logged a new record trade surplus of 247.8 billion euros, up from 213.6 billion euros in the preceding year. The German government trimmed its economic growth outlook for 2016 to 1.7% in January, down from an earlier estimate of 1.8%. Moreover, a slowdown in global demand might trigger another revision. However, strong domestic consumption is expected to drive the Europe’s biggest economy this year.

USD

“The fact that payroll gains fell back to earth is not necessarily a bad sign. Most indications are that the job market in the U.S. is on solid footing and improving”

- Nariman Behravesh, chief economist at IHS

The number of job openings in the US surged more than expected in December, adding to signs that the labour market continues to improve. According to the Labor Department, US companies advertised 4.9% more jobs in the reported month, totalling 5.6 million, the most since July. The JOLTS report is among the data closely watched by the Fed officials. The increase raised the job openings rate to 3.8% from 3.6% in November. At the same time the hiring rate remained unchanged at 3.7%, indicating that employers faced challenges to find qualified workers for vacant positions. A total of 3.1 million Americans quit their jobs in December, the highest number since 2006, pushing the quits rate, a measure of confidence in the jobs market, to 2.1%, the highest level since 2008. The report came ahead of Fed Chair Janet Yellen testimony to Congress later in the day. A number of disappointing economic reports, plunging oil prices and a stock market sell-off have fuelled doubts as to whether the Fed would raise interest rates this year.

However, the data last week showed the US unemployment rate declined to 4.9% in January, down from 5.0%. In addition to that, average weekly earnings increased 12 cents an hour or 0.5% on a monthly basis, translating into a 2.5% annualized gain. As the unemployment rate remains low, many economists expect Americans to see paychecks increase.

GBP

“Following on from a somewhat disappointing Christmas period for retailers, the new year kicked off to a strong start”

- Helen Dickinson, chief executive of the BRC

The UK retail spending growth hit the highest level in four month in January, as consumers bought more big-ticket items like furniture. The British Retail Consortium reported retail sales values jumped 3.3% last month compared with a year ago, up from a 1.0% gain in December. Furniture and home appliances were the top performers, while discounts in the New Year sales boosted clothing and footwear sales. The report added to signs that Britons continued to spend freely, despite a gloomier global economic outlook. The Bank of England revised down its short-term outlook for both inflation and economic growth, referring to external and domestic headwinds as well as low price pressures and the major factors weighing down on the UK economy and production.

A separate report showed Britain’s trade deficit widened in the final quarter of 2015 amid global market turmoil and a slowdown in emerging markets that hurt British exports. The gap between exports and imports increased from 8.6 billion pounds in the September quarter to 10.4 billion pounds, sparking concerns that UK’s worsening trading position would be a drag on the economy’s growth this year. Moreover, the UK’s goods trade shortfall with the rest of the world widened by 1.9 billion pounds to a record high of 125 billion pounds in 2015. However, 2015 saw a record surplus in the UK’s dominant services sector of 90 billion pounds.

AUD

“While financial market volatility might be on the minds of many businesses, the fact that actual business conditions are holding up across the economy, particularly the non-mining states, does suggest that that's giving businesses some reassurance at the moment”

- Rikki Polygenis, NAB's head of Australian economics

Australia’s business confidence held up in light of the ongoing turmoil on financial markets around the world. According to NAB’s monthly business survey, business confidence remained unchanged at 2 last month, with the measure being choppy last year, partly due to volatility on money markets and concerns about China’s economic growth. However, business conditions deteriorated, with the corresponding gauge falling to 5 in January from a revised 6 in the prior month, but the measure remained comfortably above its long-term average of 1. While low interest rates continues to support the domestic economy in a period of transition away from a commodities boom, general business sentiment has also improved since Prime Minister Malcolm Turnbull assumed the leadership last September.

At the same time, Australian consumer confidence rebounded this month, a sign domestic demand will continue to shore up the economy this year. The Westpac Consumer Sentiment Index soared 4.2% from 97.3 last month to 101.3 in February, the highest reading since November. The report also showed that that people’s assessment of their family finances over the next year was also strong, up by 3.8% for the month. Low inflation and interest rates are likely to contribute to improvement of consumer moods.

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